Shareholder in Corporation Loses Employee Standing in Lawsuit for Disability Discrimination Under the ADA

Dr. Linda Bluestein was a shareholder in Central Wisconsin Anesthesiology S.C. and a member of its board of directors. After losing the vote that terminated her employment contract, Bluestein filed a lawsuit against the corporation for allegedly violating three statutes that protect “employees.” Those statutes were the Americans with Disabilities Act (ADA) and Title VII of the Civil Rights Act of 1964. The presiding federal judge concluded, however, that Bluestein was an employer of the corporation and not an employee. The court granted Central Wisconsin’s motion for summary judgment disposing of her lawsuit.

The 7th U.S. Circuit Court of Appeals in Chicago affirmed the trial judge’s order and applied the “non-exclusive list of six factors” that the U.S. Supreme Court adopted in Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S. 440 (2003), as criteria for determining whether a shareholder qualifies as an employee under statutes that don’t provide a “working definition” of the word.

The U.S. Court of Appeals tangled with the question of determining the meaning of the term “employee.” The Supreme Court reasoned that, when the statute (ADA) does not provide a working definition, the courts should turn to the common law test for determining who qualifies as an employee. Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S. 440 (2003).

In Clackamas, the court was presented with a scenario that was remarkably similar to the circumstances in Central Wisconsin. In Clackamas, a bookkeeper sued a medical clinic for disability discrimination under the ADA. Because the ADA applies only to employers whose workforce included 15 or more employees, it was necessary to determine how many “employees” the clinic employed during the relevant time period.

The court answered the question of whether the “four physicians actively engaged in medical practice as shareholders and directors of a professional corporation should be counted as ‘employees.’” 538 U.S. at 442.

In the Clackamas case, the court turned to the common law definition of “servants” in determining whether an individual is an employee. Under the common law definition, a servant is a person whose work is controlled or is subject to a right to control by the master. According to the case opinion, the Restatement (Second) of Agency, Section 2(2) and 220(2)(a), the court remarked that the element of control should be the principal guidepost in assessing whether a person is an employee.

In contrast to the definition of an employee, “an employer is the person, or group of persons, who owns and manages the enterprise. The employer can hire and fire employees, can assign tasks to employees and supervise their performance and can decide how the profits and losses of the business are to be distributed. When deciding whether shareholders or directors are employees, no one factor should be decisive, but all aspects of the relationship should be considered.”

In Bluestein’s case, there were approximately 16 physician-shareholders at the time of her termination. Bluestein asserted that she had no authority, control or influence over the board. She based this assertion on the same evidence that was found to be inadequate. She was a full member of the board and an equal shareholder entitled to vote on all matters coming before the board. Instead, she essentially alleged that she frequently found herself in the minority position when her colleagues decided question about how to run the business.

Dr. Bluestein enjoyed the same right of control that every other physician-shareholder possessed. She possessed no more or less influence over the organization than any other shareholder.

Bluestein argued on appeal that her original contract was written before she became a full shareholder. That contract referred to Dr. Bluestein as an employee. Bluestein also noticed that she received a W-2 form indicating her wages annually. But in the Clackamus decision, it cautioned that “the mere existence of a document styled ‘employment agreement’ [should not] lead inexorably to the conclusion that either party is an employee.”

The appeals panel concluded that the language in Bluestein’s contract would not overcome the reality of her position in the professional corporation. Finally, Dr. Bluestein failed to raise a genuine issue of material fact on whether an individual who shares in the profits, losses and liabilities of the organization could be considered an employee. Taking in consideration of all six factors that are found to be elements of common law control, the appeals panel agreed that she was an employer, not an employee, which was fatal to her discrimination lawsuits.

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